Breaking: EPA accuses Ram and Jeep of using cheating software on its diesels (updated)

UPDATE: FCA CEO Sergio Marchionne spoke to CNBC regarding this issue later in the day. This story is updated to include his comments.

The Environmental Protection Agency has accused Fiat Chrysler Automobiles [NYSE:FCAU] of failing to disclose engine management software for 2014-2016 Ram 1500s and Jeep Grand Cherokees with the 3.0-liter turbodiesel engine marketed as the EcoDiesel. The Notice of Violation affects approximately 104,000 vehicles. The California Air Resources Board (CARB) has also released a notice of violation.

Marchionne told CNBC he feels that FCA has been "unnecessarily maligned."

The EPA says the vehicles have at least eight auxiliary emission control devices (AECDs) that appear to cause the vehicles to perform differently when being tested than when in use.

The EPA has challenged FCA to show how these aren't defeat devices. So far, the EPA is not satisfied with FCA's response. The software allows the engines to emit nitrogen oxide, or NOx, in excess of the standard, but the EPA is not saying by how much. This is a violation of the Clean Air Act.

Marchionne explained that, unlike the VW defeat devices that detected when the vehicles were likely on a test cycle, Chrysler's software worked during normal operation to protect the engine. "They cannot be classified as defeat devices because we're trying to defeat nothing," he said. "These were mechanisms that were put in place to protect the engine in particular circumstances when the engine was under load."

For now, the EPA is putting FCA on notice, and an investigation continues in conjunction with the California Air Resources Board (CARB).

FCA US has issued a response to the allegation. It believes that its emission control systems meet the applicable requirements, and it says that it has proposed a number of actions to address EPA's concerns, including "developing extensive software changes to our emissions control strategies that could be implemented in these vehicles immediately to further improve emissions performance."

The EPA notes that most diesels can meet the EPA emissions standards, and several 2017 diesels have been certified. The FCA 3.0-liter, however, hasn't.

Marchionne said Chrysler has been in contact with the EPA about the issue since September 2015, and that he feels the company has the software in place to fix the issue. "Our software package, the one that is ready to go to be flashed in all of our vehicles, will cure all their concerns."

There are no 2017 models with the engine because the EPA discovered the AECDs while it was attempting to certify the vehicle for the 2017 model year.

The FCA CEO hopes he can work with the new administration to resolve the issue and get 2017 models with diesel engines on the road. "I sincerely hope that we can resolve it very, very quickly and get certification under 2017. Diesel engines are available to be installed both in the Grand Cherokee and the Ram 1500. If we can get over that hump, then we take that software and effectively reflash the '14, '15, and '16 cars and make the issue go away," he said.

If that happens, the EPA and FCA will have to negotiate a settlement. The civil penalties for the violations could run as high as $44,539 per vehicle sold. Any settlement number is premature, but it would most likely not be that high per vehicle.

"The rest of it really becomes a question of administrative compliance with the standard and whether we agree or not agree that there was an infraction in place," Marchionne noted.

If you own one of these vehicles, the EPA says no immediate action is required. They are safe and legal to drive.